[stop-imf] Indonesia: Time to call for debt relief one year after the tsunami

[Robert Weissman]

The Jakarta Post
January 24, 2006
By Ivan A. Hadar, Jakarta
http://www.thejakartapost.com/misc/PrinterFriendly.asp

Time to call for debt relief one year after the tsunami

One year after the tsunami, new Coordinating Minister for the Economy
Boediono stated that in 2006 there would be no call for debt
rescheduling, adding that Indonesia had to be careful in calling for
debt relief. In truth, it is time for the government of Indonesia to
become more proactive in seeking debt relief, since some creditor
countries offered debt moratoriums, reductions and cancellations for
countries affected by the largest natural disaster in living memory.

Indonesia's total debts amount to US$134.85 billion (foreign and
domestic), or more than 40 percent of GDP, and the national budget
deficit is more than $3 billion, leaving the government little space to
engage in development.
In a 2000 report on Global Development Finance, the World Bank placed
Indonesia in the category of "severely indebted low income country", in
the same group with the poorest countries in the world, including Mali,
Malawi and Ethiopia.

After the Asian economic crisis in 1997, Indonesia was "forced" to
implement a "structural adjustment program" initiated by the IMF, which
lasted until the end of 2003. Since this program, the nominal value of
the country's debt installments have been larger than the money
allocated for poverty reduction. More often than not, the impact of the
IMF program was trauma, misery, the destruction of various aspects of
life, the eviction of poor farmers, and the elimination of subsidies for
education, health services and social benefits.

The United Nations Children's Fund (UNICEF) warned in 2002 that in the
future, Indonesia could face the reality of a "lost generation" as a
consequence of a lack of nutrition, poor health services and low
education levels. Millions of people in the country will be robbed of
their opportunity to improve their lives, because the government is
required to repay its foreign debts.

According to rough estimates, every day Indonesia must allocate about
$2.5 million to pay the interest on its debts to international financial
institutions.

After the tsunami, and especially after the government sharply increased
fuel prices, it is guaranteed that the number of people living below the
poverty line will increase sharply.

Much of the Indonesia's debt could actually be classified as odious or
illegitimate. The majority of the country's debt was accumulated during
Soeharto's 32-year regime.

This is a clear instance of odious debt, or debt that was contracted
without the knowledge or consent of the population, with the government
abusing the money to oppress its people. The lenders knew what was
happening. It is a kind of "crime by omission".

The combination of persistent and widespread poverty in Indonesia and
the odious nature of Soeharto-era debts provides a compelling argument
for the cancellation of all of Indonesia's debts. And such a
cancellation must come without harmful economic conditions attached.

There is the argument that the money from the lenders was taken from
taxpayers in those countries. The counter argument would be that the
money to repay these illegitimate debts is taken from the Indonesian
people who never consented to the debts. At the least, an agreement to
share the responsibility should be negotiated between the new
government, which acts in the name of the entire nation, and creditors.

Several days after the tsunami in Aceh and North Sumatra, some creditors
offered the Indonesian government debt relief. Proposals from Germany
and England were refreshing and a good omen. This is because, through
the London Agreement in 1953, Germany, which was still rising from the
ruins, obtained relief with the cancellation of a huge part of its
foreign debts. What is important to note here is that debt cancellation
is not what our government is worried about, because it would not
decrease the debt rating or credibility of the country.

In his autobiography, a German negotiator at the London Agreement, Josef
Abs, wrote that "the regulation for the cancellation of a huge part of
the foreign debts of Germany did not only increase her credibility; it
also regained the trust of the international community in Germany".
It is not surprising that historian Ernst Tauber concluded that the
London Agreement not only was one of the decisive factors in the
development of the economy of Germany, which was in a shambles after
World War II, but it actually became a reference point in restructuring
her international "debt relations" in the future.

The most important result of the London negotiations was the
cancellation of 51.5 percent of the nominal foreign debts of Germany.
What is interesting is that this "German Model" was applied during the
New Order government. Based on the real capability of the economy of
Indonesia at the time, a 57 percent foreign debt cancellation was
proposed. After experiencing various obstacles, in particular, the
objections of creditor countries, the deal was approved on April 24,
1970.
Like the London Agreement, this Paris Agreement also helped in the
development of the economy of developing countries, as debtor countries.
A 1987 study by a German institution concluded that these two cases
should be used as models in resolving the foreign debts of many current
developing countries.

The government has a constitutional duty to protect the lives of its
people, which is why it must demand debt cancellation. Recently,
Argentina and Nigeria have been able to convince lenders to cancel
significant portions of their debts.

The Indonesian government must convince lenders that the country
deserves debt cancellation. But will Indonesia be able to bring to
justice those who stole the loans before asking its creditors for mercy?


The writer is executive director of the Indonesian Institute for
Democracy Education (IDE). He can be reached at ivan-ah@centrin.net.id.